K.K. Adhikari, J.
1. The decision in this reference shall also govern the disposal of Miscellaneous Civil Case No. 372 of 1981 (CIT v. Umraolal Mahawar).
2. These two references arise out of the orders passed by this court on December 19, 1980, in Miscellaneous Civil Case No. 181 of 1977 and Miscellaneous Civil Case No. 183 of 1977, at the instance of the Revenue, directing the Tribunal to submit the statements of cases under Section 256(2) of the Income-tax Act and to refer the following questions of law for its decision, namely :
'(i) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the Appellate Assistant Commissioner was justified in deleting the amount of Rs. 38,770 and thereby upholding the order of the Appellate Assistant Commissioner ?
(ii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the order of the Appellate Assistant Commissioner in directing the Income-tax Officer to allow depreciation ?'
3. The facts which are material for answering the above questions are as follows. Chironjilal, respondent in Miscellaneous Civil Case No. 374 of 1981, Umraolal, respondent in Miscellaneous Civil Case No. 372 of 1981, Deepachand and Ramavatar were the owners of 'Jagdish Rice Mill', Dhamtari, of which they were the partners. Chironjilal and Umraolal had 6 annas share each while Deepchand and Ramavatar had 2 annas share each in the said concern. It appears that thereafter Ramavatar and Deepchand sold one anna share to Dulichand and Guljarimal, respectively. The above referred four partners of 'Jagdish Rice Mill, Dhamtari' leased out their property that is 'Jagdish Rice Mill' to a firm also named and styled as 'M/s. Jagdish Rice Mill, Dhamtari'. It is necessary to mention at this stage that there were as many as 11 partners which constituted the firm, 'M/s. Jagdish Rice Mill, Dhamtari', inclusive of the four owners as referred to earlier of the 'Jagdish Rice Mill', Dhamtari. One of these 11 partners was a minor who was admitted to the benefits of the partnership. The written down value of the rice mill in question was Rs. 90,250. The said rice mill, namely, 'the Jagdish Rice Mill, Dhamtari', was handed over to M/s. Jagdish Rice Mill, at a value of Rs. 2,00,000. Out of said value of Rs. 2,00,000, Rs. 75,000 each came to the share of Chironjilal and Umraolal, respectively. The Income-tax Officer calculated the difference between the written down value of the property handed over to 'M/s. Jagdish Rice Mill, Dhamtari' and came to the conclusion that there was a difference of Rs. 1,03,385 and accordingly took this amount as profit under Section 41(2) of the Income-tax Act. The share of each of the two assessees who are respondents, here in the reference, came to Rs. 38,770. The assessment in respect of these two assessees respondents were done accordingly by the Income-tax Officer.
4. Being aggrieved, the assessee preferred an appeal before the Appellate Assistant Commissioner and contended therein, that since there was no sale or transfer of the property for a price, the aforesaid amount which has been assessed under Section 41(2) of the Income-tax Act deserves to be deleted. The Appellate Assistant Commissioner, vide his order dated February 7, 1975, accepted the contentions of the assessees/respondents and ordered deletion of the amount. The said order further directed the Income-tax Officer to allow depreciation of Rs. 2,456. The Revenue thereafter preferred an appeal before the Tribunal. The Tribunal dismissed the appeal so preferred by the Revenue by observing, inter alia, that when the assessees/respondentshanded over the business assets to the partnership firm known as M/s. Jagdish Rice Mill, Dhamtari, in which the assessees/respondents were the partners, it could not be said that there was a sale effected to the aforesaid partnership firm. Thus, there being no sale under Section 41(2) of the Income-tax Act, the said provision would not be applicable. The Revenue thereafter preferred an application under Section 256(1) of the Income-tax Act for referring the aforesaid questions of law for decision to this court. This application was dismissed. The Revenue thereafter sought references of the question by making an application to this court under Section 256(2) of the Income-tax Act and that is how the matter is before us for the decision of this court.
5. Section 41(2) of the Income-tax Act is applicable in cases where building, machinery, plant or furniture which is owned by the assessee and which was or has been used for the purposes of business or profession is sold, discarded, demolished or destroyed and where the moneys payable in respect of the aforesaid items exceed the written down value, so much of the excess which does not exceed the difference between the actual cost and the written down value is chargeable to income-tax as income of the business of the previous year in which the moneys payable for the aforesaid assets become due. From the facts and circumstances of the case as also from the statement of the case submitted to this court, it is clear that the assessees/respondents did not sell the 'Jagdish Rice Mill, Dhamtari' to 'M/s. Jagdish Rice Mill, Dhamtari', in which the assessees/respondents were also the partners but had only handed it over to the new partnership firm. In view of this clear finding, in our opinion, both the Appellate Assistant Commissioner and the Tribunal were right in holding that the provision of Section 41(2) of the Income-tax Act has no application, as there was no sale. All that can be said is that the assessees/respondents contributed assets to the firm, 'M/s. Jagdish Rice Mill, Dhamtari', Such a contribution by the assessees/respondents cannot be held to be a sale and it was merely a mutual adjustment of the rights in the assets of the partnership in the new firm. The aforesaid view taken by us is also supported by the decision of the court in Addl. CIT v. Ramchand Daryanomal : 138ITR666(MP) and Addl. CIT v. Agarwal Timber and Bans Co. : 144ITR46(MP) .
6. Further, the Supreme Court in CIT v. Hind Construction Ltd. : 83ITR211(SC) has held that a sale contemplates a seller and a purchaser, and if a person revalues his goods and shows a higher value for them in his books, he cannot be considered as having sold those goods and made a profit therefrom. Nor can a person, by handing over his goods to a partnership of which he is a partner as his share of the capital, be considered as having sold the goods to the partnership. In the view takenabove, the reference is answered in favour of the assessee and against theRevenue.
7. Accordingly, our answer to the questions referred to us is as follows :
That the Tribunal was right in holding that the Appellate Assistant Commissioner was justified in deleting the amount of Rs. 38,770 and also was right in law in upholding the order of the Appellate Assistant Commissioner, in directing the Income-tax Officer to allow depreciation.
8. There shall be no order as to costs.